Wal-Mart: Rules Too Tough to Open in India

Wal-Mart Stores Inc. one of the world’s largest retailers is still trying to decide what to do next in India.

After launching its brand to much fanfare with its Indian partner Bharti Enterprises Ltd., Wal-Mart has hit a wall as restrictive regulations as well as number of court cases have soured its view on the Indian opportunity.

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The retailer wants to open new stores in India under its wholesale venture with Bharti Enterprises Ltd. But even after India last year eased its restrictions on foreign companies investing supermarkets, Wal-Mart has yet to file an application to open any.

Wall Street Journal: Where does Wal-Mart stand in filing an investment proposal to the Indian government?

Scott Price: Regarding foreign direct investment, the rules that were passed were quite arduous. There’s frustration that after a year no one has applied. And I’m sympathetic to the government. I think they are right-minded. I think the Indian economy continues to require foreign direct investment like every other strong economy that is building a middle class. It’s the simple rules of macroeconomics.

I think the situation became complicated and politicized. The government has worked very hard to interpret the rules to make them less arduous. But there are a couple of areas (of regulation) that we simply don’t see how any retailer–whether domestic or foreign– could possibly operate (under). At the end of the day, all we ask for in any market where we invest is a level playing field.

One only has to walk the stores of a domestic player in India and know that rules such as the 30% sourcing from medium and small enterprises is simply not possible. I’ve explained to the government I’m more than happy to launch a Wal-Mart cola, but the problem is that I can’t make anyone buy it. How do I achieve the 30% when those customers can go across the street to an Indian retailer and buy the cola they desire?

So I’m optimistic about the market and long-term in India, but we are patient and we are only going to file when we think we can have a simple business that can be 100% compliant with the law.

WSJ: Wal-Mart is in the midst of several different investigations, many of which are global and others in India. Could you shed light on them, explaining what Wal-Mart is learning and how the company is reacting?

Mr. Price: There are three different investigations, one of which is related to the Foreign Corrupt Practices Act. Regarding the FCPA, in which there is an internal and a guided investigation, on that the investigation is underway and there’s nothing I can say about that. We continue to cooperate and look forward to resolving it.

The other two investigations refer to India. The first was a lobbying issue. There was a standard report that we do quarterly in Washington, D.C. that’s done by any entity of a certain size that lobbies in D.C. It basically covers the amount of money for your office and your staff. The government of India basically fills out the same quarterly report.

That was picked up as some sort of smoking gun by Indian media. That then led to an investigation. We’ve found it perplexing, to be honest with you. It’s simply just a standard quarterly report that we’ve done for years as a result of having Washington, D.C. office.

We hope that will resolve soon. It seems to have expanded into something it was not intended to be, so the lobbying issue we believe was a complete non-issue. It simply validated we have an office in Washington, D.C. as do 114 other entities who fill out the same quarterly form. And many of them are foreign, like I mentioned the Indian government.

Then there’s an enforcement directorate investigation that was the result of a public interest lawsuit. A Public interest lawsuit in India means any individual can go to court and request that a lawsuit will be approved on behalf of the public. So this particular lawsuit was whether Wal-Mart’s structured agreement with its partners Bharti was appropriate or not.

Our view is that we created that in consultation with the government. We followed the rules at the time and what we were not aware of was that there was a technical change required in how the foreign exchange rules were managed in the reserve bank of India. That is really what’s caused the question. There was no ill intent and this was not by any definition us trying to do anything other than what we thought was legal.

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